The Revolt Against The Euro

By Shareholders Unite:There is a revolt against the euro going on, and it isn't surprising. The consequences are extremely dire, though.EconomicsThe whole euro concept was always more political than economic. The design was 'half-baked,' in the sense that experts knew at the time that it meant giving up adjustment mechanisms (independent monetary policy and currencies), forcing a budgetary straitjacket (the 'Stability and Growth Pact'), and engaging in a one-size-fits-nobody monetary policy.This would be fine as long as countries would not show what in economic parlance is called an 'asymmetrical shock,' that is, events that impact the economies of member countries in different ways, triggering the need for adjustment.The euro optimists believed that the euro itself would produce 'convergence,' economies becoming more similar and less prone to these 'asymmetrical' shocks.Those euro optimists were wrong.And their error has a good chance in being one of the most seriousComplete Story »

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Today, we’re fortunate to have a guest contribution by Jeffry Frieden, Stanfield Professor of International Peace at Harvard University, and author of the newly published Currency Politics: The Political Economy of Exchange Rate Policy (Princeton University Press, 2015). This post is based upon a portion of that book.

Within the last 24 hours, G-7 officials issued a currency statement, "clarified" it and then criticized the clarification! Here, in summary terms, are three possible reasons for this muddle, as well as what it may mean for investors. Let us start with the context.

NEW DELHI: The S&P BSE Sensex rose sharply along with other Asian markets in Friday's trade a day after the European Central Bank (ECB) signalled its readiness to inject more stimulus into the economy to support growth. The ECB took no new step on Thursday, but the central bank chief, Mario Draghi, signalled that it could extend its 1 trillion euro bond-buying (quantitative easing) programme, if necessary, to combat weak inflation, said a Reuters report. "The ECB is studying new stimulus measures that could be unveiled as soon as December.

Out of the “currency wars” of the 1930s, and then World War II, came a shared dream among the non-communist states: to establish a stable economic environment for business and trade.
Representatives from forty-four countries met at the Mount Washington Hotel in Bretton Woods, New Hampshire, and recreated the world gold standard system.

The Realist understanding of international affairs is that it is a realm of competition. The competition is multi-faceted, taking place in politics and economics. It has a cultural dimension. It take place even in the writing of history.

PAUL KRUGMAN reminds us that the problems of southern Europe are not caused by past profligacy. He is right in some sense. It is true that according to any off-the-shelf definition of the government budget, a number of these countries (though certainly not all) were doing fine: running surpluses and reducing the debt burden. Yet it isn't clear that a static, cash-basis accounting concept of the government budget is the most reasonable.

Michael Burda, Stefan Gerlach , 17 June 2010While the Stability and Growth Pact had good intentions, it failed because nothing happened when governments broke the rules. This essay proposes an enhanced Pact with increased fiscal transparency, an independent committee of fiscal experts, and a 1% tax on new debt above the 60% debt-to-GDP ratio. This would redistribute the costs of running Europe from the countries that have their house in order to those that don’t.

Paolo Manasse, 7 October 2010The European Commission has recently reviewed the Stability and Growth Pact. This column argues that while such a reform is urgently needed, the naivety of the Commission’s proposals, with the exception of those concerning budgetary institutions, risk being counterproductive. Full Article: Stability and Growth Pact: Counterproductive proposals